Oil falls as China inflation spurs concern stimulus will slow

Jan. 11 (Bloomberg) -- Oil dropped as accelerating Chinese inflation bolstered concern that economic stimulus may be curbed. The spread between crude in New York and London narrowed to the least in almost four months.

Futures fell as much as 1.2 percent after the Chinese government said prices rose the most in seven months. The discount of West Texas Intermediate oil traded in New York to London’s Brent shrank after Enterprise Products Partners LP and Enbridge Inc. completed the Seaway pipeline expansion, providing an outlet for record supplies in the central U.S.

“If Chinese inflation is accelerating, there may be less room for stimulus, which would cool demand for oil in China,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “There should be plenty of oil heading to the Gulf Coast. We should see the spread continue to come in rather quickly.”

Crude oil for February delivery fell 51 cents, or 0.5 percent, to $93.31 a barrel at 1:21 p.m. on the New York Mercantile Exchange. Trading volume was 12 percent above the 100-day average. Futures are up 22 cents this week. Prices settled at $93.82 yesterday, the highest level since Sept. 18.

Brent oil for February settlement declined $1.49, or 1.3 percent, to $110.40 a barrel on the London-based ICE Futures Europe exchange. Volume was 34 percent above the 100-day average. The grade is down 0.8 percent this week.

Premium Shrinks

The Chinese consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg survey of 42 economists and a 2 percent gain in November.

“We’re probably seeing an overreaction to the Chinese data,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It looks like the rise in inflation was due to cold weather. Once winter is over, prices should ease.”

China, the largest oil-consuming country after the U.S., accounted for 11 percent of global demand in 2011, according to BP Plc’s Statistical Review of World Energy.

The European benchmark’s premium to West Texas Intermediate shrank as much as $1.22 to $16.85 a barrel, the narrowest gap since Sept. 20, as service resumed on the Seaway pipeline, which can now carry 400,000 barrels a day from Cushing, Oklahoma, to the Gulf Coast. Brent’s premium was $25.53 on Nov. 15.

“I wouldn’t be surprised if it dropped to $10 or less in the next couple months,” Armstrong said.

Increasing Capacity

Supplies in Padd 2, which includes the Midwest and Cushing, climbed to a record 115.1 million barrels last week, the U.S. Energy Information Administration said Jan. 9. Stockpiles at Cushing, the delivery point for WTI, rose 332,000 barrels to a record 50.1 million in the week ended Jan. 4, according to the EIA, the statistical arm of the Energy Department.

“People are looking for at least a temporary easing of the glut at Cushing,” Lynch said.

Gasoline and heating oil, which are priced off of Brent crude, plunged today. Gasoline for February delivery tumbled 5.54 cents, or 2 percent, to $2.7379 a gallon in New York. February heating oil decreased 4.64 cents, or 1.5 percent, to $3.0079 a gallon.

The Standard & Poor’s GSCI Index of 24 raw materials dropped as much as 1.3 percent, led by declines in gasoline, silver and heating oil.

WTI may rise next week on optimism that global economic growth will accelerate, according to a Bloomberg survey of analysts and traders. Fourteen of 28 respondents, or 50 percent, said crude will advance through Jan. 18. Nine in the survey, or 32 percent, predicted a decline and five forecast little change.

Electronic trading volume on the Nymex was 346,698 contracts as of 1:24 p.m. Volume totaled 732,744 contracts yesterday, the highest level since Nov. 13 and 51 percent above the three-month average. Open interest was 1.48 million.